There are many factors to consider when considering renting versus buying a home. Chief among these can be your desired mobility. Indeed, suppose you anticipate your residence in a place to be short-term. In that case, renting does afford a greater degree of flexibility.
And yet, as the availability of housing continues to grow tighter, ownership becomes a more attractive and practical option. So consider these things as well: The rising cost of rent; limits on making a space your own; home expenses only add value to your landlord, not you. Add all of this up, and it may be time to take another look at homeownership.
Most of us have a monthly housing payment regardless of whether we rent or buy. The question is, “who is gaining value from that payment, you or the landlord?” If you are renting, the answer is that your landlord is building equity and value from the property.
If you plan to stay in one place for more than a few years, why not invest in your future? Mortgage payments can be a way of paying yourself in long-term value. The equity you build today can be the profit you realize tomorrow. Rental payments typically increase every year. With a mortgage payment, your monthly costs are set when you finalize the loan. Therefore, except for property tax increases, which generally do not occur yearly, you can be confident that your monthly expense will remain stable for years. Ownership allows you to build equity with the same fixed monthly payment rate. Therefore, homeownership is an excellent move for your personal finances as equity grows over time. Equity gives you power and options with your finances. You can use equity to increase the home’s value through renovations and updates. You can, in many cases, use your equity to make other investments such as acquiring rental properties. Ownership gives you the freedom to make home improvements so you will be able to enjoy your house to the fullest.
There may also be tax benefits of homeownership as there may be various ways to reduce your annual tax burden if you’re looking for tax deductions. Some of the potential tax benefits may include: mortgage interest deduction, real estate tax deduction, points paid upfront to reduce your monthly payment, home office deductions and possibly others. Perhaps one of the most attractive is a capital gains tax exemption for a primary residence. If you have lived in the home for two of the last five years, you may be exempt up to $500,000 for a married couple. When applying potential deductions, I recommend that you work with a tax professional to ensure that you comply with the latest tax laws and to determine what deductions may apply to your specific situation.
People often think that buying a home is putting down permanent roots. For many, that can be the case. If that’s your goal and you’ve found the right location and house, this is an excellent next step. But you don’t have to buy a home forever. Many people buy a home, enjoy it for a few years, and then sell it at a profit to purchase a different house. Some people buy a second house and rent the first. You don’t have to pick one place forever when purchasing a home because the housing market is constantly changing. Regardless of your long-term plans, ownership provides you with an asset that is yours. It offers you the flexibility to make the changes you want in your home and the equity to build a more stable future for yourself and your family.
Rich Flanery is a Certified Mortgage Planning Specialist and an Investment Adviser Representative. NMLS #256117. Branch location, 600 S. Saint Vrain Ave. #4, Estes Park, CO 80517. To see full article you can access at www.rockymountainlender.com